Mid-December Press Review

A few pieces of news have caught our attention over the last few days, notably the strong growth in GDP in Quebec and Canada, as well as inflation, in parallel. In addition, real estate prices have continued to rise, with an average increase of 21% in November for residential properties; moreover, it is expected that prices will continue to rise by 10% over the next year.

This brings us to the phenomenon of a real estate bubble in which Canada is mired. Thus, buyers would be paying a price well beyond the market value of their property. This imbalance, caused by too much demand versus supply, feeds the idea that property values will be in perpetual rise. This appeals to many buyers who are obviously looking to purchase a property with the idea that it will increase in value over time. However, when supply begins to exceed demand, the bubble bursts. According to the U.S. Federal Reserve's method of calculation, Canada would be in a real estate bubble because prices have exceeded fundamentals for five consecutive quarters. The Bank of Canada considers that only Montreal and Hamilton are in such a speculative bubble. The increase in interest rates could act as a remedy, painful during the normalization of prices, but which will allow a correction of prices.

Furthermore, a survey conducted among 5,500 respondents by the firm Léger paints a picture among 18–34-year-olds regarding their residential choices. Thus, their desire to acquire a property has decreased compared to last year, citing the increase in the price of single-family homes, their coveted real estate product, as the main reason. This trend will therefore favor rental real estate in the short and medium term. Let's also note the immigration "boom" which will certainly keep real estate overheating at its frantic level.

Finally, it should be noted that the mayor of Montreal, Valérie Plante, has stated that she will limit tax increases to 2%. During the election campaign, she pledged to limit the increase to the level of inflation. However, with the record figures reached at this level, it seems obvious that a cap of around 5% would have been unacceptable.